Sime Darby off day’s high, UOB Kay Hian Research TP RM12.05

KUALA LUMPUR (March 27): Shares of SIME DARBY BHD [] rose a high of RM9.79 on Tuesday before giving up the gains in the afternoon session in the absence of follow-through buying.

At 3.03pm, Sime Darby was unchanged at RM9.73.

The FBM KLCI was up 4.22 points to 1,587.20. Turnover was 1.29 billion shares valued at RM883.91 million. There were 334 gainers, 344 losers and 353 stocks unchanged.

UOB Kay Hian Malaysia Research said on Tuesday it was maintaining a BUY and target price of RM12.05 based on the sum-of-the-parts method, which implies a blended 15 times 2013F price-to-earnings.

“We continue to like Sime for its defensive PLANTATION [] business, decent dividend yield of 3.6% and good earnings growth visibility,” it said.

The research house said with plantation companies expanding their operations, plantation land is getting scarce, especially those that are suitable for oil palm plantation. This has resulted in land prices increasing by 30%-40% over the past four years.

“Sime is the largest plantation company in Malaysia by landbank. It has a sizeable plantation landbank in Malaysia and Indonesia of 976,000ha, of which about 463,000ha is in Malaysia and 286,000ha in Indonesia. Also, rising urbanisation has resulted in significantly higher valuations for plantation land near to urban centres, especially in Peninsular Malaysia,” it said.

UOB Kay Hian Research said besides having the largest plantation landbank, with about 5,410ha of land for property development (versus UEM Land’s 2,800ha and S P Setia’s 1,800ha), Sime owns the largest property landbank in Malaysia.

“Sime’s large landbank concentrated in Selangor is best for mass-property development. The government’s emphasis on mass-market property and financing scheme for first-home buyers could further boost the need to unlock land for property development. To ride on the rising property land prices, Sime has about six township developments in the pipeline for future development,” it said.



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UOB Kay Hian Research lowers consumer sector to market weight

KUALA LUMPUR (March 13): UOB kay Hian Malaysia Research is downgrading the consumer sector to Market Weight from Overweight as valuations of consumer stocks under its coverage appear fully valued.

It said on Tuesday these stocks had rallied 8%-20% since December 2011, with the sector trading at about one standard deviation above the historical average.

“We also do not anticipate any exciting corporate developments in the near term. (Recall in 2011, KFC Holdings (KFC) was proposed to be privatised, and Guinness Anchor (GAB) paid out a special dividend),” it said.

UOB Kay Hian Research said the present market climate remained supportive, pointing out that valuations were “not too hot” and earnings growth was moderating but not turning cold.

“The sector remains defensive as the anticipated strong consumption growth in 2012 plus good pricing power (which offsets some increases in raw material cost) ensure decent dividend yield of 2%-5%,” it said.

The research house said the consumer sector continues to be a beneficiary of fiscal stimulus, announced hefty 7%-13% pay hikes for civil servants for 2012, general election and special events (UEFA Euro Cup 2012 which will boost brewery consumption).

On its move to reduce the sector to Market Weight, it said this was to reflect fair valuations and moderate earnings growth prospects.

"Our stand also reflects our Sell call on KFCH as its price upside is limited by the takeover offer price (RM4) by Massive Equity Sdn Bhd while the completion of the privatisation exercise appears being delayed with the master franchisor, Yums! reportedly being reluctant to approve the deal.

“Among the segments, we still prefer brewery which should benefit from the imminent modest 3%-4% price hikes, low capex requirements and healthy volume growth (estimated 5% in 2012),” it said.

UOB Kay Hian Research said its preferred pick was Guinness Anchor (Hold, target: RM12.80), which continued to appeal for its steady market share gain, decent net effective yield of 4.7%, and likely distribution of a second tranche of special dividend (estimated 60 sen a share) which would most probably take place in FY13.

It raised its target price to RM12.80 from RM12.50 to account for the higher beer prices.



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UOB Kay Hian maintains Hold on Maxis, DCF-based TP RM5.25

KUALA LUMPUR (Feb 17): UOB Kay Hian Malaysia Research is maintaining a Hold call on Maxis Bhd with a discounted cashflow-based target price of RM5.25 versus the last done price of RM5.77.

It said on Friday the stock price was supported by a 7% net yield.

Maxis had on Thursday announced plans to issue Islamic medium-term notes with a nominal value of up to RM2.45 billion based on the sukuk musharakah principle for capital expenditure and working capital purposes.

The proposed unrated sukuk, which would have a tenure of up to 30 years, would also be used for general funding requirements as well as general corporate purposes of the company and its subsidiaries.

UOB Kay Hian Research said the coupon rate for the debt notes will be determined later as the debt will be issued via private placement, bought deal or book-building basis.

“As part of the disclosure requirement for this debt, Maxis announced that it had been approved by the Ministry of Finance in November 2011 for a total of RM320 million tax credit - RM233 million for prior years and RM97 million for nine-months 2011 – for its investments in last mile broadband,” it said.

The research house said the entire amount would be recognised in its 4Q11 results, representing 15% of its current forecast net profit, but will be deemed as a lumpy item.

“Besides, this has less than 1% (4.3 sen/share) impact on our valuation for Maxis,” it said.



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SP Setia up on revised offer but road bumps ahead in property mkt

KUALA LUMPUR (Jan 25): Shares of S P Setia Bhd rose on Wednesday after the board received a revised offer, raising the price by five sen to RM3.95 per share.

At 3.06pm, S P Setia was up six sen to Rm3.94. There were 1.91 million shares done at prices ranging from RM3.93 to RM3.97.

Last Friday, Permodalan Nasional (PNB) and S P Setia’s group president and CEO Tan Sri Liew Kee Sin jointly agreed to raise the general offer (GO) price for SP Setia from RM3.90 a share and 91 sen a warrant to RM3.95 a share and 96 sen a warrant respectively.

UOB Kay Hian Malaysia Research said the upward revision of five sen “is minimal, but it implies a mild positive ending to the saga and that the relationship between PNB and S P Setia would still be positive”.

Liew and S P Setia would ink a management agreement where he would remain as group president and CEO of the company for three years following the close of the revised offer, in line with the market’s expectations.

"We understand Tan Sri Liew would not be selling his 8% stake but is eligible for a put option at RM3.95 spread over three years,” it said.

UOB Kay Hian Research said while “we do not doubt the strong capabilities of S P Setia’s management, but we are concerned that the property market would be rough going forward”.

The research house said S P Setia’s key products were skewed towards the mid-range to high-end segment.

The research house said it was maintaining a Sell and target price of RM2.99 (pegged at a 30% discount to RNAV), premising on the past-peak property and investment cycle and also due to lingering external concerns.

“Since September 2011, S P Setia’s rich valuations at 22 times forward PE and 2.2 times P/B are supported by the takeover by PNB at RM3.90. Hence, we expect share price to retrace to a 30% discount to RNAV (mid-cycle valuation) once the takeover is finalised. Our target price implies 16.7 times FY13F PE, on a par with its historical mean of 16 times,” it said.



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Stocks to watch: Ramunia, Scomi Engineering, MPHB, Silver Bird

KUALA LUMPUR (Jan 23): Stocks on Bursa Malaysia will have to take their cue from the European and US markets in the holiday-shortened trading week, starting on Wednesday.

Trading activity is expected to see lower trading volume as most traders and investors take leave for the Chinese New Year holidays.

In Europe on Monday, fresh signs that a deal may be reached on a Greek debt restructuring, as euro zone finance ministers prepared to decide on acceptable terms for approving further bailout funds.

Reuters reported demand picked up after French Finance Minister Francois Baroin told journalists in Paris that a deal with private sector investors about resolving Greece's debt crisis was taking shape.

However, German Finance Minister Wolfgang Schaeuble, at the same event, said he wanted a second bailout programme for Greece to be in place by March.

Nonetheless, with Bursa Malaysia only reopening on Wednesday, investors would be watching closely the developments unfolding, mainly in Europe on Tuesday.

At Bursa Malaysia, among the stocks to watch include RAMUNIA HOLDINGS BHD [], SCOMI ENGINEERING BHD [], MULTI-PURPOSE HOLDINGS BHD [] (MPHB) and SILVER BIRD GROUP BHD []

Ramunia was given a new lease of life following Bursa Malaysia Securities Bhd’s approval for its proposed regularisation plan which includes a rights issue. The regulator had agreed to the cancellation of 25 sen of the par value of the existing shares of 50 sen each.

Last Friday, the company announced Bursa Securities also agreed to the proposed renounceable rights issue of up to 391.44 million shares of 25 sen each at an indicative price of 40 sen per share on the basis of two for five shares held after the change in par value.

Ramunia said Bursa Securities agreed to the business rejuvenation plan which involved business strategies to build up the group’s order book in relation to major offshore fabrication works as well as other oil and gas related business activities.

Scomi Engineering Bhd’s consortium partners have officially sealed the contract with Brazil’s Amazonas state for the RM2.56 billion monorail system.

The Manaus monorail system will include 20 km of monorail line from Largo da Matriz to Jorge Teixeira, nine stations and 10 train sets of six cars each.

The total award is valued at Brazilian Real 1.46 billion (RM2.56 billion) of which Scomi Engineering’s share is Real 339.9 million (RM597.2 million). The project is expected to be completed in 40 months from the date of the signing of the contract.

The Edge weekly reported in its Jan 23 issue that MPHB is in talks to sell a hotel in Kuala Lumpur for about RM50 million as part of its asset rationalization scheme. MPHB’s unit owns hotels in Penang and in Kuala Lumpur.

Analysts’ expectations are that it could transform into a higher-yielding company. UOB Kay Hian Malaysia Research said MPHB could re-rate in the second half of 2012 as investors start to price in significant divestment and monetisation of its non-gaming assets.

It said MPHB was trading at a steep discount to consensus RNAV of RM3.40 and at a prospective price-to-earnings multiple of 9.9 times on consensus’ forecast.

The Edge also reported that Silver Bird targets to be a global player in the food business as it hopes to leverage on its major shareholder Koperasi Permodalan Felda Malaysia Bhd. Plans are afoot to include other basic food products in various countries, according to Silver Bird group managing director Datuk Jackson Tan.

Positive news from a “win-win” situation for S P Setia Bhd president and chief executive officer Tan Sri Liew Kee Sin and Permodalan Nasional Bhd (PNB) should provide some interest in the property developer.

Under the revised offer announced last Friday, PNB, Liew and S P Setia would also ink a management agreement where Liew would remain as group president and CEO for three years following the close of the revised offer.

S P Setia said PNB agreed, in the three years following the close of the takeover offer, Liew would be given a put option giving him the right to sell his 8% stake to PNB progressively in tranches at the same price of RM3.95 for each S P Setia share, should he desire to do so.

However, trading upside would be capped by the five sen increase in the share and warrants offer prices to RM3.96 and 96 sen under the revised offer.

UMW HOLDINGS BHD [] could see some trading interest after Perodua, in which it holds a substantial stake, allocated RM200.5 million for capital expenditure this year, which includes building its new flagship 3S centres.

Perodua would invest RM30 million to RM40 million for the centre at Section 19, Petaling Jaya, as a model of its future sales and service centre nationwide.



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More upside for MPHB as it transforms into higher-yielding company

KUALA LUMPUR (Jan 13): Shares of MULTI-PURPOSE HOLDINGS BHD [] (MPHB) rose on Friday on analysts’ expectations that it could transform into a higher-yielding company.

At 3.10pm, it was up four sen to RM2.74. There were 923,900 shares done at prices ranging from RM2.70 to RM2.74.

UOB Kay Hian Malaysia Research said MPHB could re-rate in the second half of 2012 as investors start to price in significant divestment and monetisation of its non-gaming assets.

It said MPHB was trading at a steep discount to consensus RNAV of RM3.40 and at a prospective price-to-earnings multiple of 9.9 times on consensus’ forecast.

“Its discount to RNAV should narrow over time as it works towards monetising its non-core assets en route to becoming a purer gaming company, and as it reduces its net gearing that would allow it to raise dividend payout in the medium term,” it said.

UOB Kay Hian Malaysia Research said the expected developments include MPHB selling its Hotel Flamingo in Kuala Lumpur in the first quarter of 2012 and the securing of joint venture partners or buyers for its other hotels and other property assets.

It said there were expectations from the launch of its sizeable Rawang property development by 2H12, and by 1H12, the spinoff of its insurance arm and listing of U-Mobile (where it has invested RM180 million to date).

“Collectively, these exercises could release at least RM5 billion worth of market value,” it said.



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Stocks to watch: Faber Group, Bumi Armada, TAS, Tebrau Teguh

KUALA LUMPUR (Jan 13): Stocks which could see trading interest on Friday include FABER GROUP BHD [], Bumi Armada Bhd, TAS Offshore Bhd and TEBRAU TEGUH BHD [].

The latest suit which Faber’s subsidiary Faber Ltd Liability Company is facing is from a sub-contractor, Sweet Home Technical Works Ltd Liability Company, for services provided for housing projects in Abu Dhabi.

Faber said the statement of claim dated Jan 10 was for AED13.12 million (RM11.21 million), which Faber LLC is disputing.

Meanwhile, UOB Kay Hian Malaysia research had initiated coverage on Bumi Armada with a sell and sum-of-parts target price of RM3.16 due to weaker outlook.

“Despite the promising macro outlook for floating production storage and offloading (FPSO) platforms within the region, Bumi Armada remains one of the most expensive stocks within the oil & gas services sector.

“Minimal exposure in Malaysia, limited lifespan on FPSOs, concentrated revenue stream on a singular asset, exposure to risky markets/counter parties and coupled with a short operating track record are inherent risks the market should not ignore,” said UOB Kay Hian Research.

On an upbeat note, TAS Offshore’s earnings continued to improve, with net profit of RM2.227 million in the second quarter ended Nov 30, 2011 compared with net loss of RM184,000 a year ago, boosted by sale of its tugboats under CONSTRUCTION []. Its revenue was 27.7% higher at RM31.57 million compared with RM24.72 million a year ago.

TAS’ second quarter net profit of RM2.227 million was higher by 75.3% compared with RM1.27 million in the first quarter while its revenue rose 79% or RM13.91 million from RM17.67 million.

Interestingly, Tebrau Teguh could stand to report a gain of RM16.67 million from the sale of two parcels of commercial land in Plentong, Johor.

It is selling the parcels of land for a total of RM28.27 million, which RM16.67 million or 143.7% above the net book value of RM11.60 million as at Dec 31, 2010. The company said the RM28.27 million was based on a valuation report by Messrs. Raine Horne International Zaki + Partners dated June 17, 2011.

“The total net book value as per audited financial statements for the year ended Dec 31, 2010 is RM11.60 million,” it said.

BINA PURI HOLDINGS BHD [] is negotiating the financial and legal aspects of a privatisation concession agreement with the National Highway Authority in Islamabad, Pakistan. Bina Puri said had received the letter of intent dated Nov 11, 2011 from the highway authority.

SUPERMAX CORPORATION BHD []’s 340.07 million new bonus shares will go ex on Jan 26. The company said the shares were issued on a one-for-one basis. The entitlement date is Jan 30.

CIMB Group says its discussions with San Miguel Corp to possibly acquire a stake in Bank of Commerce in the Philippines, was still on-going. It expected to conclude the negotiations by the first quarter of 2012.



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Bumi Armada dips, concerns of risky markets

KUALA LUMPUR (Jan 12): Bumi Armada shares dipped on Thursday as analysts were concerned about the longer term outlook for its business in a riskier market.

At 11.06am, it was down one sen to RM4.10. There were 383,000 shares done at prices ranging from RM4.09 to RM4.12.

UOB Kay Hian Malaysia research had initiated coverage on Bumi Armada with a Sell and sum-of-parts target price of RM3.16.

“Despite the promising macro outlook for floating production storage and offloading (FPSO) platforms within the region, Bumi Armada remains one of the most expensive stocks within the oil & gas services sector.

“Minimal exposure in Malaysia, limited lifespan on FPSOs, concentrated revenue stream on a singular asset, exposure to risky markets/counter parties and coupled with a short operating track record are inherent risks the market should not ignore,” it said.



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Senate vote a win for Genting in Florida

Florida would become the most populous state with full casino gambling outside American Indian control under a proposal that has cleared its first legislative hurdle.

The decision was a win for Malaysia’s Genting Bhd, which controls Asia’s second-biggest gaming company by market value. Yesterday’s vote in the Senate Regulated Industries Committee would allow the fourth-largest state by population to have as many as three Las Vegas-style casinos, with dealers and table games in addition to slot machines.

Genting Malaysia Bhd, a unit of Kuala Lumpur-based Genting, has pitched lawmakers on a US$3.8 billion casino-and-hotel complex on Miami’s Biscayne Bay as an antidote to the state’s 10 percent unemployment rate in November, ahead of the national rate of 8.7 percent. It also has plans to build the biggest convention center in the U.S., in New York City where it last year opened a casino at the Aqueduct Racetrack in Queens.

“The potential legalization of commercial gaming in Miami and table gaming in New York could provide a boost to earnings growth,” UOB-Kay Kian Holdings Ltd analysts Vincent Khoo and Moey Su En wrote in a report today.

Genting Bhd fell 0.7 percent to RM11.06 at 9:45 a.m. local time in Kuala Lumpur trading today, while Genting Malaysia dropped 0.5 cent. The benchmark FTSE Bursa Malaysia KLCI Index was little changed.

The Florida measure is opposed by the Walt Disney Co, the world’s biggest theme-park company, whose flagship Walt Disney World is near Orlando. Hoteliers, restaurant owners and betting parlors who say they’ll lose business to destination casinos also are lobbying against the bill.

Governor Rick Scott, a Republican who took office last year, hasn’t signaled whether he supports the plan. His insistence that any county that wants to land one of the resorts first get voter approval was included in a rewrite of the bill last week.

“This is the beginning of the discussion,” Republican Senator Ellyn Bogdanoff, the bill sponsor, said during the hearing at the state Capitol in Tallahassee. -- Bloomberg



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Stocks to watch: Investors’ eyes on Europe

KUALA LUMPUR: Key regional markets, including Bursa Malaysia, will focus on the make-or-break European Union summit this Friday where EU leaders will discuss more measures to resolve the debt crisis.

Ahead of the summit, the leaders of France and Germany are expected to meet today to hammer out a framework to put forward to the summit if more aggressive steps are needed and how to leverage the eurozone’s bailout fund.

Last Friday, the FBM KLCI closed in positive territory as some key regional markets reversed their earlier losses, but gains remained muted as investor sentiment stayed cautious.

Week-on-week, the KLCI was up 57.45 points to end at 1,489, touching the key 1,500 briefly. Market capitalisation increased by RM39.59 billion to RM1,269.59 billion.

Dr Nazri Khan, Affin Investment Bank head of retail research, said while short-term momentum might be slightly overbought, the KLCI has possibly priced in all the potential negative news it needs to digest.

“As for technicals, we see the bulls having the upper hand with all oscillators pointing up accompanied by heavy trading volume [KLCI rallied more than 30 points in a single daily session last week suggesting strong buyers underneath].

“The next upside resistance should come in at the 200-day moving average of 1,500 followed by the 2008 high near 1,530 points. Short-term supports, meanwhile, are seen at last week’s low near 1,440 followed by November’s low near 1,420,” he said.

As for the just ended quarterly corporate results, UOB Kay Hian Malaysia Research said 3Q results were largely within expectations and advised investors to accumulate on weakness.

“The first quarter of 2012 should present thematic plays like election and Economic Transformation Programme (ETP) beneficiaries,” it said.

UOB Kay Hian Research said its current top stock picks include Sime Darby Bhd and Telekom Malaysia Bhd. For 1Q12, it expects ETP beneficiaries to outperform, including Gamuda Bhd, Malaysian Resources Corp Bhd (MRCB) and UEM Land.

“We expect oil and gas stocks to come into play with the award of Petroliam Nasional Bhd’s (Petronas) risk sharing contracts. Proton is also on our radar now, as a beneficiary of government-linked company (GLC) mergers and acquisition activities,” it said.

RHB Research Institute believes local equities will still be held hostage to external developments. It pointed out concerns over the eurozone economy and the immense challenges likely to keep markets on a volatile trajectory in the foreseeable future.

“While global equities have priced in a lot of bad news on the euro debt crisis as well as macroeconomic uncertainty in the US and China, investors’ risk perceptions can still change very quickly should the situation turn out to be worse than expected,” it said.

RHB Research revised its end-2011 KLCI target back to 1,450, based on 14 times 2012 earnings per share, although it views that the market will likely be range bound between 1,450 and 1,550 points.

Among the stocks which could see trading interest are Glomac Bhd, Mah Sing Group Bhd, Tan Chong Motor Holdings Bhd and Fibon Bhd.

Glomac’s net profit for 2QFY12 ended Oct 31, 2011 rose 50% to RM23.78 million from RM15.88 million a year ago, underpinned by ongoing projects particularly Glomac Damansara, Glomac Cyberjaya, Saujana Rawang and Bandar Saujana Utama.

Its revenue for the quarter, however, declined 4.3% to RM134.83 million from RM140.89 million, due to the completion of two projects, Glomac Tower and Glomac Galleria.

Mah Sing’s proposed joint development of 4.08 acres of prime land in Jalan Tun Razak/Jalan Pahang, Kuala Lumpur, received a setback when the conditions were not met. However, Mah Sing said it would explore options to move ahead on this.

The project is a niche development, M Sentral, with an estimated gross development value of RM900 million. It is part of the RM9 billion, 58-acre riverside urban regeneration project.

The Edge weekly reported that Tan Chong Motor Holdings Bhd, which invested nearly US$45 million (RM141 million) in Nissan Vietnam Co Ltd since acquiring a controlling stake in the company last year, is optimistic that it will reach breakeven earlier than anticipated.

Fibon, a chemical compounds producer, is poised to enter a new phase of growth with the upcoming launch of its new switchboard Fibon LogiCube.


This article appeared in The Edge Financial Daily, December 5, 2011.



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Proton up amid cautious market on takeover rumours

KUALA LUMPUR (Dec 2): Shares of PROTON HOLDINGS BHD [] advanced amid a cautious market on Friday as speculation of its takeover lured traders, especially after Daihatsu Motor Co Ltd of Japan reiterated its rejection of a Proton-Perodua merger.

At 3.05pm, Proton was up 34 sen to RM3.44 with 7.63 million shares done.

The FBM KLCI was fluctuating in the positive and negative zones after the early spurt. The 30-stock index was just 0.01 of a point up at 1,485.27. Turnover was 960 million shares valued at RM700.96 million. There were 256 gainers, 372 losers and 287 stocks unchanged.

Meanwhile, The Edge Financial Daily reported on that Daihatsu, a key shareholder of Perodua, was standing firm against the idea of a merger between Perodua and Proton.

Daihatsu president Koichi Ina was quoted saying both companies have very different cultures and product lines and it's better to keep the individuality.

On Nov 29, UOB Kay Hian Research Malaysia upgrade Proton to a Hold from Sell previously raised its target price to RM3.05, after imputing a 15% discount (vs 30% previously) to RNAV.

“Should Proton be able to dispose the loss-making Lotus Group, every RM100 million raised from this potential disposal could add 20 sen/share to Proton’s RNAV,” it said.

The research house said there was some truth to the constant speculation of Proton’s impending takeover, after seeing Proton’s somewhat bullish share price action (uptrend but with high volatility) over the past two weeks, recent consolidation in the auto industry (MBM Resources buying Hirotako), ongoing reforms by ailing GLCs (eg Malaysia International Shipping Corporation (MISC) has just announced its decision to cease its liner operations, once thought to be a “sacred cow”).



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Proton on our radar now: UOB-Kay Hian

Proton Holdings Bhd, Malaysia’s state-controlled carmaker, surged 6.1 percent in Kuala Lumpur trading, set for its highest close in two weeks.

The stock jumped 19 sen to RM3.29 at 10:19 a.m. local time.

It’s set to be the second-biggest gainer on the FTSE Bursa Malaysia Top 100 Index.

Proton is “on our radar now” as it’s a “beneficiary” of merger and acquisitions of government-linked companies, UOB-Kay Hian Holdings Ltd wrote in a report today. -- Bloomberg



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Axiata falls after one-day surge, active after 3Q results

KUALA LUMPUR (Dec 1): Shares of Axiata Group Bhd snapped its one-day price surge, as investors were quick to lock in gains on Thursday after the release of its third quarter results for the period ended Sept 30.

At 3.45pm, it was down 13 sen to RM4.97 with 10.16 million shares done. It has surged 25 sen to RM5.10 on Wednesday, pushing up the KLCI up by 4.10 points.

The KLCI was up 15.41 points to 1,487.51. Turnover was 1.27 billion shares valued at RM1.32 billion. There were 506 gainers, 281 losers and 271 stocks unchanged.

For the nine months, its earnings fell 15.7% to RM1.801 billion from RM2.137 billion. Its revenue rose 4.9% to RM12.183 billion from RM11.603 billion. At constant currency, revenue would have been up 8%. Earnings before interest, tax, depreciation and amortisation (EBITDA) dipped 0.2% partly due to the strengthening ringgit against local currencies.

In the third quarter ended Sept 30, its earnings fell 7.7% to RM589.62 million from RM639.12 million a year ago on foreign exchange translation losses and higher costs.

UOB Kay Hian Malaysia Research said Axiata’s core nine-month results were broadly in line with its and consensus 2011 estimates.

However, it expected little excitement from Axiata in the medium term as the group focuses on building broadband capacity in this region. In its latest guidance, Axiata raised its capex budget to RM4.4 billion for 2011 vs RM3.9 billion earlier (guidance). This is due to the aggressive network rollout by XL.

“Hold call and sum-of-parts target price of RM5.20 are under review pending an analyst briefing. Its share price was ramped up at closing yesterday, but we see significant change in the fundamentals of the group to justify the market’s excitement. Although we think Axiata has the capacity to pay more dividends, the group is expected to hold on to its cash pile in anticipation of potential in-country consolidation in the medium term,” it said.



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‘Year-end rally’ still elusive

KUALA LUMPUR: After last week’s choppy seas, the FBM KLCI yesterday closed up 0.92% or 13.17 points to end at 1,444.72 points as the local market played catch up with regional markets and positive sentiment on Wall Street overnight.

The local index surged in early trade yesterday to hit an intra-day high of 1,458 points in the afternoon before closing lower at 1,444.72 points. Bursa Malaysia was closed on Monday due to a public holiday.

The FBM KLCI’s performance yesterday was largely driven by funds buying into Genting Bhd and selected banking stocks including CIMB Group Holdings Bhd and AMMB Holdings Bhd.

Genting yesterday surged 48 sen to RM10.50 with 10.35 million shares traded.


CIMB Group gained 31 sen to RM7.05 with 17.1 million shares traded while AMMB gained 28 sen to RM5.92 on a volume of 7.78 million shares. Both banking groups yesterday clocked in their steepest gain since late September.

On Bursa Malaysia, the top two gainers were consumer counters, British American Tobacco (M) Bhd (BAT) and Nestle (Malaysia) Bhd.

BAT yesterday gained 50 sen to RM45.90 while Nestle rose 50 sen to RM51.40.

Many analysts pointed out that the brief rally seen yesterday was a catch-up on positive sentiment seen across major regional bourses since Monday.

Regional markets in turn were riding on the good cheer on Wall Street from brighter US retail sales data over Thanksgiving last week, analysts said.

On Nov 28, the Dow Jones Industrial Average gained 2.59% to 11,523.01 points while the S&P 500 Index rose 2.92% to 1,192.55 points.

Hong Kong’s Hang Seng Index yesterday rose 1.21% to 18,256.2 points, the Shanghai Composite Index gained 1.23% to 2,412.39 points while Japan’s Nikkei 225 jumped 2.29% to 8,477.82 points.

Could the FBM KLCI’s performance yesterday foreshadow a year-end rally?
Analysts opined that it was still too early to predict if the local market could see a year-end rally as market sentiment was largely dependent on external economic conditions.

HwangDBS Investment Management Bhd head of equities Gan Eng Peng said that it was currently difficult to predict the market’s short-term direction given that markets are “in the state of delirium and no longer rational”.

“Markets are still driven by news and headlines rather than fundamentals. To be honest, how long this rally will last is anyone’s guess. We think it is just a spur of the moment,” Gan said in an email response.

Gan said markets could be pulled down once more in the event that there are no concrete plans to tackle the eurozone debt crisis during the next European summit on Dec 9 or further deadlock at the US Congressional Super Committee in resolving the US deficit issue.

Gan, however, expects to see some trading and profit-taking activity over the next few weeks as funds seek to “prop up” their portfolios and recover some of the losses made a few months earlier.

“About half of the smart money is sitting on the sidelines, while the other half is slowly flowing back to the market,” Gan remarked.

In a similar vein, UOB Kay Hian (Malaysia) head of research Vincent Khoo said that whether a year-end rally will materialise cannot be ascertained for another two to three weeks but funds could position themselves closer to the year’s end.

“A lot of it depends on what happens in Europe and the US. Right now it is a bit of a yo-yo situation. In Malaysia’s case, the catalyst (for a year-end rally) could be optimism for US economic recovery or a pre-election rally,” Khoo said.

Khoo added that although the FBM KLCI could see a slight uptrend towards the year’s end, it remained to be seen to what extent the index can catch up after falling from its recent peak.

Although the FBM KLCI closed higher at 1,444.72 points yesterday, it was still at a lower level than the recent one-month peak of 1,491.89 on Oct 31.

Yesterday’s closing level was also about 9.4% or 150.02 points lower than the year-to-date high of 1,594.74 on July 8.


This article appeared in The Edge Financial Daily, November 30, 2011.



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Slight disappointment at IJM’s revenue

IJM Corp Bhd (Nov 29, RM5.59)
Maintain sell with a lower target price of RM4.24 (from RM5.75): IJM Corp reported revenue of RM1.097 billion (up 6.2% quarter-on-quarter) and a profit after tax and minority interests (Patami) of RM74.8 million (-35% q-o-q) in 2QFY12 ended Sept 30.

The cumulative six-month 2012 Patami of RM189.8 million meets 42% of our earnings forecast and 40% of street’s estimate. Excluding the foreign exchange translation losses of RM32 million, core earnings are mostly in line.

The shortfall of earnings in 2QFY12 is due to: (i) lower recognition of construction revenue (mainly due to timing issues); and (ii) margin erosion in the property development division from 26% to 17% q-o-q as the bulk of the projects in Penang are in the early phases.

IJM’s management thinks there are still ample opportunities in the local construction scene.

We expect a better set of results for FY12 after a lacklustre first half, with construction pre-tax margin to normalise to about 4% to 5% and better earnings contribution from the healthy unbilled sales in property development coupled with better margins.

Construction pretax margin fell marginally to 3.2% from 3.7% q-o-q, and we maintain our view that the construction margin for FY12 and FY13 will hover around 3% to 4% as most of the new orders are still in their early phases.

We expect margins to normalise to about 5% and see meaningful contribution from 2012 onwards.The management has highlighted that the West Coast Expressway’s (WCE) realignment issue has been resolved. However, construction will commence in late 2H12 and earnings recognition can only be seen in FY13. We understand that the New Pantai Expressway (NPE) extension may face some delays due to alignment issues, but management expects a resolution by 1H12. Therefore we believe the award will only come in late 2012 with earnings contribution impacting only in late 2013. IJM’s outstanding order book stands at RM3.8 billion, of which 85% are domestic jobs.


IJM’s management thinks there are still ample opportunities in the local construction scene with the MRT project the main focus. Recall that IJM Construction has been shortlisted for all three categories, civil works, stations and depots for the MRT elevated portion. The tender closed in October and management expects the contract to be awarded in 1Q12, with each package estimated to range between RM500 million and RM1 billion. Channel checks indicate that the margins for the MRT job range from 3% to 5%.

IJM’s management will focus more on mid-end products next year, especially its maiden launch of Canal City in Kota Kemuning, Selangor, (gross development value [GDV]: RM10 billion). Phase 1 with a GDV of RM250 million is slated to be launched in 2H12.

We sense that the management has turned cautiously optimistic on the property market, just like other developers. Other projects in the pipeline are Sebana Cove in Johor (GDV: RM1.4 billion) and a light commercial development in Penang (GDV: RM4 billion).

Its unbilled sales of RM1 billion should provide clear earnings visibility for the next two years.

The loss for the quarter was mainly due to the foreign exchange translation losses caused by offshore US dollar-denominated borrowings amounting to RM32 million. It was impacted by the adoption of International Financial Reporting Interpretations Committee (IFRIC) 12 by toll concessions amounting to a net loss of RM12 million.

IJM’s management views this as part of the operational pitfalls and remains confident that strong growth can be delivered going forward, especially from the expansion of berth capacity at Kuantan Port and Besraya Highway extension which will begins operation by 2013.

We are maintaining our earnings forecasts. The key risks are the timing of construction jobs, inflating raw material cost and take-up rates of property projects.

Maintain “sell” with a sum-of parts-based (SOP) target price of RM4.24, which implies a FY13 price earnings ratio (PER) of 13 times. This is premised on pegging PER to its construction earnings (from 16 times to IJM Corp’s mean PER of 15 times), lower fair values for IJM Plantation and IJM Land, plus a 10% discount on the total SOP value reflecting a high foreign shareholding risk.

The share price catalysts are news flow of contract awards from the Economic Transformation Programme-pushed projects such as the MRT project, approval of the WCE and NPE extensions, infrastructure projects in Iskandar/Sarawak and extension of existing port concessions. — UOBKayHian, Nov 29


This article appeared in The Edge Financial Daily, November 30, 2011.



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Proton climbs on takeover speculation, higher TP

KUALA LUMPUR (Nov 29): Shares of PROTON HOLDINGS BHD [] rose to an intra-morning high of RM3.23 on Tuesday as UOB Kay Hian Malaysia Research raised the target price to RM3.05 on a possible takeover.

At 11.32am, it was up 11 sen to RM3.19. There were 1.10 million shares done at prices ranging from RM3.16 to RM3.23.

UOB Kay Hian Research upgrade Proton to a Hold from Sell previously raised its target price to RM3.05, after imputing a 15% discount (vs 30% previously) to RNAV.

“Should Proton be able to dispose the loss-making Lotus Group, every RM100 million raised from this potential disposal could add 20 sen/share to Proton’s RNAV,” it said.

The research house said there was some truth to the constant speculation of Proton’s impending takeover, after seeing Proton’s somewhat bullish share price action (uptrend but with high volatility) over the past two weeks, recent consolidation in the auto industry (MBM Resources buying Hirotako), ongoing reforms by ailing GLCs (eg Malaysia International Shipping Corporation (MISC) has just announced its decision to cease its liner operations, once thought to be a “sacred cow”).



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UOB Kay Hian Research: UMW’s Hold call and RM6.90 target price under review

KUALA LUMPUR (Nov 25): UOB Kay Hian Research Malaysia said its Hold call and RM6.90 target price for UMW HOLDINGS BHD [] is under review pending an analysts briefing on Friday afternoon.

It said on Friday UMW’s 9M11 core net profit of RM510 million is in line with its 2011 estimate, on an annualised basis.

UMW made a total of RM58 million in provisions, mainly for impairment of overseas investments. For 3Q11, core net profit of RM194 million improved 19% on-quarter, driven by the recovery of the automobile division.

UOB Kay Hian Research said the operating profits in 3Q11 for UMW’s motor division jumped 41% on-quarter to RM371 million on the back of a 17% jump in revenue to RM2.6 billion.

The automobile industry was hit in 2Q11 by the earthquake/tsunami in Japan in end-March 2011. Subsequently, recovery in supply of automobile parts in 3Q11 enabled manufacturers to deliver their vehicles. Together with a weaker US dollar vs the ringgit, UMW’s automobile division managed to record a strong 14% operating margin in 3Q11 vs 12% in 2Q11.

However, UMW’s O&G division remained flat with pretax loss of RM22 million in 3Q11 (vs RM23 million in 2Q11) on the back of RM295 million in revenue (+3% on-quarter).

UOB Kay Hian Research said aside from a seasonally low 4Q11 ahead, the Malaysian automobile industry is hit once again this year. This time by the floods in Thailand, which restricted the supply of automobile parts and CBU vehicles.

“Using UMW’s 2Q11 performance, when the group recorded core net profit of RM162 million, as a gauge for UMW’s potential 4Q11, its 2011 net profit could come in slightly below forecast core net profit of RM707 million.

The research house said UMW still has RM52 million worth of overseas investments in its books (NBV). Assuming UMW provides about RM25 million each quarter (as it did in 3Q11), there could be only another two quarters of provisions left, until 1Q12.

“HOLD call and RM6.90 target price (11x 2012F PE) are under review, pending an analyst briefing this afternoon. We foresee little catalyst in this stock in view of weak vehicle sales next year. Global economic uncertainty, and potential credit tightening (that is, financing for car buyers) will cast a shadow over this cyclical sector.

“Further, there is little prospect of UMW’s O&G division turning around in the near term as long as WSP faces stiff domestic competition (in China) following countervailing duties imposed by the US on steel imported from China,” it said.



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IOI Corp’s 1QFY12 affected by high forex loss

IOI Corp Bhd (Nov 21, RM4.97)
Downgrade to sell at RM5.05 with target price of RM4.50: IOI Corp recorded a net profit of RM258 million (-52.9% quarter-on-quarter [q-o-q], -48.2% year-on-year [y-o-y]) for 1QFY12. The results were way below expectation due to unrealised foreign exchange losses of RM271.7 million. Excluding this, 1QFY12 net profit was RM530 million (-3.3% q-o-q, +6.4% y-o-y), in line with expectation. Higher fresh fruit bunch (FFB) production has boosted the plantation division’s contribution. However, weakening downstream business and property divisions were a drag on net profit.

IOI’s FFB production grew 8.1% in 1QFY12. However, we expect some contraction in 2QFY12 production growth due to potential heavy rainfall from La Nina by this December and January and the 22- to 24-month impact of the 2009/10 El Nino. If La Nina is extended to April/May 2012, production will be lower than expected. We project a 7% to 9% growth in production for FY12.

IOI continued to suffer from lower sales and margins for its oleochemical and speciality fats products. This was attributable to stiff competition from Indonesian players and weakness in the European markets. IOI recorded a lower margin for its refineries segment, contrary to our expectation that refining margin would improve due to high prices on the back of high biodiesel demand. IOI’s downstream operation is expected to continue to suffer given the uncertainty and economic slowdown in Europe as it has significant exposure to the European market and with the new export tax structure that favours Indonesian downstream players.

Its property division is likely to stay weak due to the slowdown in the property market. Developers are slowing down their launches, anticipating a weak property market in Malaysia. On the other hand, IOI is embarking on a larger joint venture project in Singapore with City Development’s South Beach, located in downtown Singapore. It has an estimated gross development value of S$3.1 billion (RM7.6 billion) and completion is scheduled in 2015. We expect the project to start contributing 5% to 7% to IOI’s pre-tax profit in FY14.

We are maintaining our earnings estimates as the lower performance in 1QFY12 was due mainly to the unrealised forex losses from its US$1.3 billion (RM9.8 billion) loan.

We forecast earnings per share of 31.9 sen, 34 sen and 39 sen for FY12 to FY14.

We downgrade IOI to “sell” as the current price is above our target price after the recent price rally. Our target price is RM4.50, based on sum-of-the-parts, implying 13 times FY13F earnings per share. Investors should lock in profit from the recent share price strength. Its performance is likely to lag its peers’ due to declining FFB yield and past-prime acreage which is also due for replanting soon, and this would affect production and bottom line. — UOBKayHian, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.



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Focus on defensive, ETP stocks

KUALA LUMPUR: Defensive stocks and companies involved in the Economic Transformation Programme (ETP) should be on investors’ radar screen following Europe’s continuous inability to resolve the debt crisis.

Last Friday, the FBM KLCI snapped its three straight days of losses, surging 15.14 points or 1.04% to 1,477.51 on late buying of selected stocks.

News reports highlighting the eurozone’s repeated failure to tackle its debt crisis are catapulting the bloc towards recession, raising the spectre of dangerous spillovers to the rest of the world economy.

UOB Kay Hian Malaysia Research head Vincent Khoo said there were earlier concerns abut the contagion effect from Greece but he believed this could be under control.

“On the other hand, a recession in Europe is inevitable but this has not been fully reflected in the equities market as yet,” he said.

As for Malaysia, he said the research house has a two-pronged approach for investors. The first is to focus on defensive stocks and the second on ETP companies.

Khoo said market sentiment was also boosted by prospects of the general election.

“UEM Land will benefit from the Iskandar development projects, MRCB (Malaysian Resources Corp Bhd) from the development of the Rubber Research Institute land (RRI land in Sungai Buloh) while Gamuda Bhd would benefit from the Mass Rapid Transit project,” he said.

Other defensive counters investors could focus on are telecommunications, numbers forecast operators and consumer stocks.

Merger and acquisition activities in the near future could spice up the market, with great anticipation in the financial and gaming sectors.

Other stocks with recent corporate news are Melati Ehsan Holdings Bhd, Fraser & Neave Holdings Bhd, Malaysia Smelting Corp Bhd and Nestle (M) Bhd.

Melati Ehsan unit Pembinaan Kery Sdn Bhd has accepted two contracts from the Housing and Local Government for two housing projects worth RM298 million in Kuala Lumpur.

Fraser & Neave posted a net profit of RM66.21 million in the fourth quarter ended Sept 30, 2011, down 85.7% from the RM462.31 million a year ago where there was a gain of RM382.03 million after selling its glass container business.

It proposed a final single tier dividend of 47 sen per share together with a special single tier dividend of 15 sen.

Malaysia Smelting posted a net profit of RM41.81 million in the third quarter ended Sept 30, 2011 against a net loss of RM37.05 million a year ago where there was an impairment provision for goodwill of RM73.63 million.

Nestle posted a net profit of RM110 million in the third quarter ended Sept 30, 2011, marginally lower from the RM113.18 million a year ago as profit margins were affected by higher prices of key raw materials.

Its operating profit was RM143.16 million, up 3.8% from RM137.83 million. Revenue rose 18.2% to RM1.17 billion from RM991.07 million, boosted by strong domestic and export sales.


This article appeared in The Edge Financial Daily, November 8, 2011.

Kencana riding on O&G boom

Kencana Petroleum Bhd (Oct 31, RM 2.59)
Maintain hold with raised target price of RM2.50 from RM2.44: We met up with Kencana Petroleum Bhd recently, and we are turning more positive on its earnings outlook. The targeted additional order book replenishment for FY13 is 25% higher than our forecast. More details shared on the risk sharing contract (RSC) revealed that downside is capped at a 12% unlevered internal rate of return (IRR).

1QFY12 results will incorporate three months’ contribution from recently acquired Allied Marine & Equipment Sdn Bhd (AME). AME is expected to post higher-than-expected earnings.

Kencana will prospect for the next marginal field, only after the merger with SapuraCrest Petroleum Bhd, which is expected to be completed by 1Q12.

The Berantai gas field, we estimate, yields a minimum 12% unlevered IRR, through cost recovery via fabrication and engineering works done by Kencana for the marginal gas field. We also understand that the returns could go as high as 18% unlevered IRR if Kencana manages to meet the scheduled delivery time and expected production rates from the gas field. Peak production is expected in 2013.

Kencana’s existing order book is valued at RM2.2 billion. The engineering, procuring and construction (EPC) segment accounts for more than 56% of its existing order book. Kencana has a tender book of RM10 billion and 50% to 60% of the tenders are in overseas international markets.

There are still 25 marginal field lines up and 10 are ready for development. Only two marginal fields, thus far, have been given out to Kencana-SapuraCrest and Dialog Group Bhd.


Other domestic projects in the pipeline include 22 new shallow water blocks and six deepwater blocks. Petronas has also allocated RM3 billion for maintenance and hook- up jobs over the next three years. Kencana is the biggest offshore maintenance and hook-up player in Malaysia.

Tender rigs fabricated by Kencana, the KM-2 and KM-3, will be completed on April 13 and July 13. One of the rigs will be reserved for jobs in Malaysia and the other overseas. The rigs have yet to be contracted out and bids usually take place when nearing completion.

Current debt to equity levels of 0.5 times is not alarming for an oil and gas services provider. Kencana is still in a net debt position despite having RM800 million in cash.

Kencana’s gross profit margins have risen from just 11% to 25% in the last six years. Its margins, which are almost twice that of Malaysia Marine and Heavy Engineering, are attributable to better cost management and lower subcontracting requirements.

We raise our target price to RM2.50 from RM2.44, which is based on a 16 times price earnings multiple to FY12 earnings. Our entry price is RM2.10. The award of more marginal fields would boost Kencana’s intrinsic value.

Kencana and SapuraCrest could be undertaking more M&A exercises after the merger. They are planning another major corporate exercise in three years. — UOB Kay Hian Research, Oct 31


This article appeared in The Edge Financial Daily, November 1, 2011.